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JPY: As US yields drop a move closer to inversion (2s10s just over 13bps away) looms. Among the major beneficiary of this has been the Japanese Yen, which has gained across the board. USDJPY made a break below 113.00 as US/JP 10yr bond spreads narrow from the wides of 300bps. Alongside this, the softer tone in equity markets has also contributed to the gains in the JPY. As a reminder, CFTC data suggest that markets remain heavily short the JPY, leaving USDJPY vulnerable to further declines.

GBP: The Pound received a bid this morning to surpass the 1.28 handle after comments made by the ECJ Advocate General, who stated that the UK can revoke Article 50 unilaterally as opposed to needing the approval of all EU 27-member states. However, this was merely a non-binding decision instead of a ruling. The focus on the Brexit front will be the upcoming meaningful vote, which is yet to receive much of a boost in terms of passing. As is typically the case, Brexit optimism tends to be faded.

USD: The US Dollar is on the backfoot this morning as US yields continue to pullback. Since yesterday’s high, the 10yr yield has dropped 11bps, consequently, sparking USD bulls to head for the exit. US yield curve inversion in the 2s5s and 3s5s seen yesterday has continued to sap demand from the USD.

USDJPY: Data shows 47.8% of traders are net-long with the ratio of traders short to long at 1.09 to 1. In fact, traders have remained net-short since Nov 02 when USDJPY traded near 113.064; price has moved 0.2% lower since then. The percentage of traders net-long is now its highest since Nov 02 when USDJPY traded near 113.183. The number of traders net-long is 13.0% higher than yesterday and 1.6% higher from last week, while the number of traders net-short is 10.4% lower than yesterday and 15.3% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USDJPY prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current USDJPY price trend may soon reverse lower despite the fact traders remain net-short.

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